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Unemployment Edges Up Despite New Jobs

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JEANNINE AVERSA | October 5, 2007 06:20 PM EST | AP

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WASHINGTON — Fears that the country could slide into a recession eased in September as employers created the most jobs in four months and workers' wages grew solidly. The unemployment rate crept up to 4.7 percent, the highest in over a year but still low by historical standards.

Wall Street breathed a sign of relief and pushed the Dow Jones industrial average up more than 125 points in afternoon trading.

The tally of 110,000 net new jobs generated in September clearly heartened investors and analysts. Yet what they really took comfort in was the revelation that the job market _ a main pillar for the economy_ didn't crack under the pressure of a painful credit crunch and housing slump in August after all.

The Labor Department's fresh snapshot of employment conditions around the country released Friday showed that the economy actually created 89,000 jobs in August.

That was a huge and crucial turnaround from the loss of 4,000 jobs _ the first decline in four years _ reported a month before. At the time, that news had sent Wall Street into a nosedive, stoked fears the economy was heading toward recession and was seen as cementing the Federal Reserve's decision to lower interest rates.

To be sure, the ill effects of the housing and credit problems have hurt some employers, slowing national job growth this year. But the situation is nowhere near as dire as many were led to believe from the initial August employment report.

"We are on much sounder footing," said Carl Tannenbaum, chief economist at LaSalle Bank. "To be fair, it is clear the pace of monthly job creation has slowed and the unemployment rate is creeping higher but neither measure is indicative of an imminent recession, which was the scenario on everyone's lips just a month ago."

The main reason behind the turnaround in the August payroll figure? A big gain in government employment, especially in hiring teachers at local schools.

The bump up in the unemployment rate from 4.6 percent in August came as hundreds of thousands of people _ perhaps feeling better about their prospects _ resumed job searches.

The new rate of 4.7 percent, the highest since the summer of 2006, is still considered low by historical standards. After the country's last recession, in 2001, the unemployment rate peaked at 6.3 percent. More than two decades ago, for example, civilian unemployment went over 10 percent as the economy suffered through deep downturns.

President Bush, coping with record-low approval ratings for his handling of the economy, welcomed the new employment figures.

"I am really pleased with the economic news, but I don't take good news for granted," Bush said. "I understand that people are worried about their mortgage payments, or concerned about sending their child to college. I know that people are concerned whether or not they're going to have enough money to meet their needs," he said. Bush called on Congress to keep taxes low.

Sen. Charles Schumer, D-N.Y., countered that the Bush administration needs to "spend more time putting the conditions in place for good-paying job creation and shoring up our battered housing market."

The strain from housing and credit woes was clearly evident in some industries. Construction companies, financial firms, factories and retailers cut jobs last month. However, gains in education and health services, professional services, leisure and hospitality, and in government work more than offset those losses, leading to a net gain in new jobs in September.

Those with jobs saw fatter paychecks.

Average hourly earnings rose to $17.57 in September, up 4.1 percent over the past 12 months. It was the highest annual gain since February. Wage growth is the fuel for consumer spending, a major contributor to national economic growth.

Continued solid wage growth should help cushion people from the negative forces arising from the worst housing slump in 16 years and a jarring credit crunch, analysts said. That should lessen the odds consumers might clam up and send the economy into a tailspin, some said.

To cushion the economy from those negative forces, the Federal Reserve last month sliced a key interest rate by one-half percentage point to 4.75 percent. It was the first rate cut in more than four years.

Looking ahead, some economists said the new employment figures cast doubt on whether the Fed will cut rates again at its next meeting Oct. 30-31. Others, however, continued to predict that rates will go down.

Economic growth, which clocked in at a brisk 3.8 percent pace in the spring, is believed to have slowed to a subpar pace of under 3 percent in the just ended July-to-September quarter. Some believe that growth will be weaker in the final three months of this year.

Job growth has slowed. The economy created an average of 97,000 jobs a month during the third quarter. That was down from an average 126,000 a month in the second quarter and below an average of 142,000 in the first three months of this year.

"There is still a certain amount of caution on the part of companies' human resources departments. The economy is still in slowdown mode and not fully back to health. But it is not in the intensive care unit," said Ken Mayland of ClearView Economics.

The unemployment rate is expected to climb to close to 5 percent by the end of the year.

In September, the jobless rate for blacks jumped to 8.1 percent, from 7.7 percent in August. The unemployment rate for Hispanics climbed to 5.7 percent from 5.5 percent.

A meltdown in the housing and mortgage markets this year has clobbered some homeowners, driving foreclosures to record-high levels. Lenders have been forced out of business. And, investors in mortgage-backed securities have taken huge losses. A spreading credit crunch took a turn for the worse in August, unhinging Wall Street. There have been some signs that the financial turmoil has calmed down, although the situation remains delicate.

"We are not out of the woods yet," cautioned Nigel Gault, economist at Global Insight.

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On the Net:

Employment report: http://www.bls.gov/home.htm